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Roth IRA for Your Kids: How to Get Started Now

Opening a Roth IRA for your young adult kids is a breeze. I set one up for my 21-year-old daughter and my 19-year-old son in about 15 minutes. I did it all online, and without having to reach them at college for signatures or any personal information.

Both of them work over the summer to earn spending money for the school year. I pay their tuition, but stopped paying an allowance when they graduated from high school. So they need the income. But as an added incentive I set up each with what I call a family 401(k), where I match their summer earnings with a contribution to their Roth IRA.

This program has many benefits. The first thing you need to know is that your kids must have taxable income to qualify for a Roth IRA. That alone is good reason for them to get a job over the summer or after school. To open their account you will need:

  • Their Social Security number
  • Their employer's name and address
  • Your bank information
  • Money in your account to transfer
  • Some idea of a user name, password and identification question for your kids (once the account is up and running they may change those at any time)
I set up my kids' Roth IRAs at Fidelity, where I have several accounts of my own. The kids own their accounts; the accounts are in their names and they have full authority over them. The next time they are home, though, I'm going to ask if they'd like me to manage their Roth IRA for the time being. I'm sure they'll say yes, in which case they'll have to sign a "household" and "trading authority" form. Those will allow me to see their accounts on my home page and make investment decisions on their behalf.

You can set up a Roth at any number of financial institutions -- banks, brokerages, mutual fund companies. They all have certain advantages. But for your kids' accounts a mutual fund company probably has the best combination of convenience, low fees and minimums and investment options. Fidelity, for example, lists a $2,500 minimum to open a Roth IRA. But that is waived if you sign up for monthly contributions -- or if you simply ask. I launched my kids' Roth IRAs with $1,000. Other good choices include Vanguard and T. Rowe Price.

Why It Pays to Get Your Kids Started Now
Photo courtesy Flickr user irsein

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